Wednesday, 15 September 2010

Handle your credit card with care and get benefited

Credit card is very much useful and it gives us freedom from the risk of handling liquid cash and also gives us some time to make the actual payment. But at the same time it is dangerous also. I f you are careless it will help you to vanish your wallet in no time.  If you use credit card keep control over the purchase and payments. Purchase only the needy items and when you purchase behave just like you are purchasing with the money you have.

Economist states that human wants are unlimited. But resources to satisfy these unlimited wants are limited. So a wise man/woman managed to handle our unlimited needs with limited resources. But somebody think that they got an unlimited source of money to pay through their credit card. The risk is hiding here. You can purchase as much as and when you need to pay the credit card bill they are offering a magical temptation is that the minimum amount to pay vey less amount than the actual payment.

Suppose your credit card bill is $ 10000 and the minimum amount to pay is only around $1000. You are tempted to pay $1000 instead of $ 10000.  Then you should pay the interest around 3% per month for the entire amount from the date of purchase, not from the last date of payment. You might have aware that this 3% pm is 36% per year. If you purchased for $ 1000 at the first day of your billing cycle starts and after 50 days the last date of payment you paid only the minimum payment of $ 100 and thought that the balance of $ 9000 could pay with interest @ 3% in the next due date.  No doubt you fell in the trap of credit card. With the next bill you have to pay 3% interest for the whole 100 days from the date of purchase. That means (9000 x 36% x 100)/365 = $ 888 as interest and there may be a fine also. So the next bill will be $9888 + fine if any. The minimum amount you paid is already gone. So keep in mind that pay full before the due date.

You should not be surprised if a nonpayment of $ 500 charges with another $ 400. That is the calculation of credit card. You may be wonder why these card authorities allow us such a credit facilities and good services. This is the secret.

But at the same time you can use credit card as a profitable tool. Some credit cards allow you life time free of service charge and money back for certain transactions. Some allows reward points for your transactions and the accumulated reward points can be redeemed for certain purchases. Make benefit out of it and at the same time mind to pay full in time.

One important thing you must keep in mind that the cash withdrawals with credit cards from ATM. This withdrawals charge a service fee and the interest will be charged from the very first day of withdrawal and sometimes they charge a high interest for such withdrawals.

Most credit cards offer an EMI facility to pay any loan you take on your credit limit. It normally takes just one or two business days to obtain this loan and this can even be arranged over the phone with no documentation. However, the difference lies in the high interest rate charged, which can be as high as 30-42% as an annualized rate. The cards that offer a comparatively lower interest rate in the range of 22-26% most often do not have an EMI facility for repayments.

Totally when you handle the credit card you handle it with care. Credit card is ok and a good instrument to fund your short term requirements and can get things before you get your normal income such as salary, rent etc. But remember the bank has the authority to change the interest rate and shorten or withdraw the interest free period at any time. So be vigilant for such changes. Use your credit card wisely and harvest benefit from it.

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